What is private equity?
Private equity is a form of equity financing for institutional and private investors.
Investors who support start-ups financially, but also through their experience and through advice, will be investing in non-listed companies.
Backers become significant shareholders through their investment and usually have the corresponding influence.
Private equity is an alternative asset class and consists of capital that is not listed on a public stock exchange.
Start-ups and established companies can both be invested in private equity and that is the perfect opportunity to strengthen the equity base without going public.
This is made up of backers who invest directly in private companies or buy-outs from public companies, which leads to delisting of exchange-traded equity capital.
Private investors thus provide equity for companies, which can then be used to finance new technologies, acquisitions, to expand working capital and to strengthen and consolidate a balance sheet.
What is venture capital?
Venture capital is a form of financing that involves investing capital in a company, usually a startup or small business, in exchange for equity in the company. It's also an important part of a larger, more complex part of the financial landscape known as private markets.
How does venture capital work?
As companies grow, they go through different stages of venture capital. In addition, companies or investors can focus specifically on certain phases, which affects their type of investment.
Seed stage: When a venture capitalist provides relatively little capital to a company in the early stages to be used for product development, market research, or developing business plans, this is known as the seed stage. As the name suggests, a seed round is often the company's first official round of funding. Seed-round investors typically receive convertible bonds, stocks, or preferred stock options in exchange for their investment.
Early stage: The early stage of venture capital financing is intended for companies in the development phase. This funding phase is usually larger than the seed phase as new businesses need more capital to get up and running once they have a viable product or service. Venture capital is invested in rounds or series identified by letters: series A, series B, series C, etc.
Late stage: The late stage of venture capital financing is intended for more mature companies that may not be profitable yet but have proven growth and revenue generation. As in the early phase, each round or series is denoted by a letter. When a company that a VC company has invested in is successfully acquired or goes public, the company makes a profit and distributes income to the limited partners who have invested in its fund. The company could also make a profit by selling some of its shares to investors in what is known as the secondary market.
Private equity creates added value for private investors